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Oct 25

What Types of Insurance Do You Need?

One of the scariest financial mistakes you can make is not having all of your risks covered. Passing away without life insurance, for example, could potentially cause a great deal of financial harm to the dependents you leave behind. Life is full of risks, and it’s important to ensure all your risks are covered. However, it’s also important to make sure you aren’t wasting money on insurance products you probably don’t need.

Insurance you may need

Everyone has different needs and risks, so not everyone will need every type of insurance included in this list. At the very least, you should evaluate the different types of insurance listed and decide if the coverage is right for you.

Life insurance

Only 32% of Americans have life insurance. Not everyone has a need for life insurance, but significantly more than 32% of the probably needs life insurance. Term life insurance, which is just pure life insurance without any investment products or cash value, is the most affordable and preferred choice for many families.

If you have dependents, you probably have a need for life insurance. No one likes to think about their untimely death, but it’s important to make sure your dependents will be taken care of if something happens. Unmarried or older individuals and couples without children may not need life insurance, but the potential need for life insurance should still be considered by everyone.

Long-term disability and long-term care insurance

Just 12.5% of Americans have disability insurance, but over 25% will miss at least one year of work due to disability. Disability can happen at any time, but shopping for long-term care insurance usually occurs closer to retirement. 52% of people age 65 will need long-term care at some point in retirement.

Other types of insurance you may need

  • Homeowners/renters insurance
    • Some form of homeowners insurance is usually required by your lender, but renters insurance may not be. They both can help protect your home and belongings.
  • Auto insurance
    • Almost every state requires drivers to have car insurance. Anything can happen on the road, and car insurance can protect you from some of the risk from driving.
  • Umbrella insurance
    • Umbrella insurance offers an extra layer of protection on top of existing coverage and may cover some things not already covered. Not everyone needs umbrella insurance, but if you have a significant amount of assets it may be worth a look.
  • Health insurance
    • Since the Affordable Care Act, health insurance is legally required. As of 2019, though, the fee for not having health insurance no longer applies. Either way, it’s a good idea to have health insurance. Health can be unpredictable, and health insurance helps cover that risk.
  • Flood insurance if close to water
    • If you live close to a body of water that is prone to flooding, you will probably want to get flood insurance.

Insurance you may not need

Now that you know what insurance you might need, what about types of insurance you might not need? Below is a list of different types of insurance that you might not need.

  • Pet insurance
    • Your pet is family, but pet insurance may not be the best way to pay for their care. Try using emergency savings instead.
  • Disease insurance (for heart disease or cancer, for example)
    • Specific disease insurance may not be necessary, as the risk of having cancer, heart disease, or other diseases are diminished by having health insurance, life insurance, and long-term disability insurance.
  • Dismemberment insurance
    • Nobody wants to be dismembered, but fortunately for most of us the risk is low. If the risk of dismemberment for you is significant, it may be diminished by long-term disability insurance.
  • Flight insurance
    • For those extra nervous about flying on an airplane, flight insurance may be purchased. While it may be comforting, it may not be necessary; other insurance, like life insurance, might cover you if something happens on a flight.
  • Credit card insurance
    • Credit card insurance generates over $2 billion a year in revenue for credit card companies. What does it do? If you lose your job, the insurance will make the minimum payment for you while you’re unemployed, and if you die the insurance may pay off your credit card balance. This type of insurance may not be necessary because 1.) Credit card debt shouldn’t exist! and 2.) Debts after death will be paid from the estate.
  • Short-term disability insurance
    • Short-term disability is a real risk, but it may be better to use an emergency fund to cover the risk of a short-term disability. Your emergency fund should be at least enough to last until the long-term disability insurance kicks in.

This is not a conclusive list of every different type of insurance, and your individual needs should be evaluated to see what types of insurance meet your needs and remove uncertainty and risk from your life. For more scary financial decisions, check out our Halloween show on YouTube!